Mexico's budget revenues totaled 4.28 trillion pesos in the first half of the year, showing virtually no real growth (0.1% year-over-year) and coming in 141 billion pesos below the budgeted amount. Tax revenues increased 0.4% in real terms, with a 6.2% decline in income tax collections offset by a 10.6% increase in VAT revenues, the largest gain since 2014. Meanwhile, net public spending rose 2.1% in real terms, driven by 9.7% growth in social spending, while physical investment posted a cumulative decline of 7.9%, although it rebounded by 56.2% in June. The primary balance remained in surplus at 114.6 billion pesos, the fiscal deficit was smaller than expected, and the Historical Balance of Public Sector Borrowing Requirements (SHRFSP) stood at 51% of GDP.

Our Take The composition of revenues reflects a growing reliance on VAT at the expense of income tax, increasing the sensitivity of government revenues to consumption and the economic cycle. At the same time, the acceleration in social spending and the rebound in investment during June suggest a stronger pace of budget execution toward the end of the first half of the year. Although the deficit and public debt remain under control, the reduction in the primary surplus confirms that fiscal room for maneuver continues to narrow, a factor that will be critical for meeting fiscal targets during the second half of the year.

Eurozone inflation interrupted its downward trend and increased by one tenth in July, reaching 2.9% year-over-year. The increase was mainly driven by energy prices, which have surged again following the recent escalation of the conflict in the Middle East, pushing oil prices higher. Core inflation, which excludes the volatile prices of energy, food, alcohol, and tobacco, also increased by one tenth to 2.5%.

Our Take The rebound in inflation reduces the European Central Bank's room to ease monetary policy in the short term and strengthens expectations of another interest rate increase in the coming months. The combination of a more resilient economy and renewed inflationary pressure stemming from energy prices suggests that the ECB will maintain a hawkish stance for longer.

China's economic activity weakened more than expected in July. The official manufacturing PMI fell from 50.3 to 49.2, returning to contraction territory for the first time in five months, while the non-manufacturing PMI declined from 50.2 to 49.0, its lowest level since the end of 2022. The slowdown reflected weaker domestic demand, softer new orders, and the persistent weakness of the real estate sector, confirming that the momentum seen during the second quarter is fading.

Our Take The PMI readings reinforce expectations that Chinese authorities will step up fiscal support during the second half of the year, although a large-scale stimulus program remains unlikely. For global markets, China's slowdown represents a disinflationary factor by moderating demand for commodities and intermediate goods, but it also poses a risk for economies with greater exposure to the industrial cycle and trade with Asia.

Corporate News

Amazon exceeded market expectations thanks to the strong performance of AWS, whose revenues grew 37% year-over-year, its fastest pace in more than four years, as well as the strength of its advertising business. The company also announced an increase in its investment plan for artificial intelligence and technology infrastructure, reflecting demand that continues to outpace available capacity. Although the sharp increase in capital expenditures continues to weigh on cash flow, the market interpreted the results as a sign that AI investments are beginning to translate into faster growth and greater monetization of its cloud business.

Apple also delivered better-than-expected results, reporting revenue of $109.4 billion and annual growth of 16%, driven by strong iPhone and Mac sales, as well as solid performance across nearly all regions. Nevertheless, the market remains focused on the company's ability to maintain its leadership in artificial intelligence and preserve its high sales margins amid rising costs and increasing technological competition.

Microsoft posted a historic day in the markets yesterday, recording the largest single-day increase in market capitalization ever achieved by a publicly traded company, driven by a gain of more than 15% in its stock price. The catalyst was a quarterly earnings report that significantly exceeded expectations. The market's reaction confirms that investors are beginning to demand tangible evidence that heavy AI investments can be monetized, rewarding companies capable of turning infrastructure spending into revenue growth and margin expansion.

The To-do List

  • Monitor oil prices and developments in the Middle East, although signs of a possible de-escalation are increasing, Brent and WTI continue to carry a significant risk premium.

  • Keep a close eye on the 30-year Treasury and movements in the yen, both remain key indicators of inflation expectations and the global interest rate outlook.

  • Take a break this Friday and make a creamy mushroom and garlic pasta. It's quick, affordable, and perfect for wrapping up the week without any hassle.

  • Try to fit in 30 to 40 minutes of strength training, even if it's at home.

Today's Recommendation...

"Remarkably Bright Creatures," by Shelby Van Pelt. A heartwarming novel that blends humor, mystery, and emotional depth through a story about friendship, second chances, and the most unexpected connections.